NPEs in 2015

I read with interest a recent IAM Magazine blog post which, heading into the final quarter of 2014, makes eight predictions for the NPE market in 2015. North American editor Richard Lloyd identifies these key issues:

1. Consolidation among NPEs – there has been remarkably little M&A activity but deals could now happen, possibly in the form of distressed restructuring transactions.

2. For PIPCOs we’ll see a number of take-privates – the public markets still don’t make sense for a lot of these businesses.

3. Licensing is king – those with the best licensing strategies and negotiating teams will come out on top.

4. Less chance to leverage the litigation process for advantage – we’re arguably seeing this already as more and more NPEs emphasise their commitment to reducing their litigation exposure. But with less incentive for defendants to settle, litigation is still going to be a key driver of revenue.

5. More focus on prevailing with high quality patents as a result of 4.

6. Greater need to embrace transparency.

7. Diversification will be more important than ever – moving into new sectors such as medical devices and energy should be high on the agenda for management teams.

8. Higher pressure to create returns for increasingly demanding investors; ‘plus ça change’, some cynics might say to this – but expect to see more NPEs trying to sell assets as a result.

I agree with most of this list, but it will be interesting to see if the first two trends come to light in 2015. In my view, consolidation of NPE companies is possible, but currently there are few NPEs who are sizable and cash-rich enough to lead this type of activity. Likewise, I’m not convinced there’s strong interest in the private equity community in taking publicly traded NPEs private. Finally, I don’t share the view that there’s pending NPE sell-off of patent assets in 2015. Patent sales don’t generate recurring revenue, so although investors may be eager for companies to divest low-performing patent families for a quick return – and a reduction in prosecution costs – it’s not a strong argument for an overall long-term business strategy for most NPEs.

I’m sure these issues will be among those hotly debated at IAM’s newest event, NPE 2015, just announced to take place on March 12 in NYC. We’re pleased to be a sponsor of this important conference, billed by IAM as:

…a forum for NPE decision-makers to come together with other parts of the IP transactions ecosystem to discuss not only the way the market is developing in the US, but also to look at how business models can adapt to reflect the changes. On top of this, NPE 2015 will identify emerging finance options, as well as new opportunities in different technological areas and jurisdictions outside the US.

NPE 2015 is not an event about or for the “patent extortionists” Conversant chief IP officer Scott Burt wrote about so compellingly on the IP Watchdog blog last week; instead it is aimed at serious entities that seek to play a positive role in fostering sustainable, transparent practices which are built around the licensing of high-quality patents.

We believe that these are very different to the trolls of popular imagination – and we also believe that those who work in IP transactions, in all types of entity, understand this too (whatever some might say for public consumption). The fact is that NPEs are an important part of the IP marketplace, they bring liquidity to it, they have played an important role in changing perceptions about patent values and, increasingly, they work closely with any number of operating companies. They are not going to go away.

We’re looking forward to meeting with our peers in NYC and having some great conversations. Here’s the information for registering: